Equipment Breakdown Coverage: What It Covers and Who Needs It

What the coverage is

It is insurance, sold as a policy or an endorsement, that covers sudden mechanical, electrical or pressure failures of covered equipment.

Typical covered causes include electrical arcing, motor burnout, operator error and failure from power surge, depending on the policy. Covered items often include HVAC systems, refrigeration, production machinery, computers and medical or dental devices.

It is sometimes called boiler and machinery coverage. Policy wording varies, so read the definitions. For broader context, see types of business insurance.

What it usually pays for

Many policies pay for repair or replacement of the equipment, and some add income lost during downtime and spoilage of stored goods.

• Repair or replacement of the failed equipment
• Expediting costs to speed up repairs
• Spoilage of food or goods, such as when a cooler fails
• Business income loss while you cannot operate, if added
• Extra expense of renting temporary equipment

Each of these may be optional or have its own limit. Look for waiting periods on income loss coverage too.

Common exclusions to check

Normal wear and tear, lack of maintenance and damage from fire, flood or theft are usually excluded here and covered elsewhere or not at all.

Do not assume everything is covered. Review these points:

1. Wear and tear, rust and gradual deterioration
2. Damage from poor maintenance
3. Perils covered by other policies, such as fire
4. Software and data problems
5. Deductible and waiting period amounts

Ask the agent for a sample claim scenario that matches your equipment. Keep service records, since they help in a claim.

Who should consider it

Businesses that depend on expensive, hard-to-replace machines benefit most, such as restaurants, medical offices, manufacturers and laundromats.

The question is how long you can run without the machine, and what it would cost to replace. See restaurant equipment for an example.

What it costs and how to decide

Premiums depend on the equipment value, type and deductible. Compare the annual cost to the cost of one major failure and your downtime losses.

Illustrative example: a $60,000 refrigeration system could cost $12,000 to replace and cost you $8,000 in spoiled stock and lost sales during a week of downtime. A premium of a few hundred dollars a year looks small next to a $20,000 event.

Get quotes from more than one insurer and ask about bundling with your business owner's policy. Review your deductibles too.

Ask your agent how the policy values a replacement. Some pay actual cash value, which subtracts depreciation, while others pay replacement cost. On a ten-year-old machine, that gap can be large. Also ask whether an upgrade to newer, more efficient equipment is allowed or whether you must replace with the same model.

When there is no coverage and equipment fails

Without coverage, you pay for repair or replacement yourself. Financing can spread the cost, but the better plan is a repair reserve.

Set aside a repair reserve, even a modest monthly amount. If a machine fails and cash is short, equipment financing can replace it in 2 to 7 days. A line of credit is another way to cover surprise repairs.

ROI Funder considers 500+ FICO, 6+ months in business and $20,000+ monthly revenue. We show payback math before you sign. Read cost of waiting to buy equipment and using business loans for equipment upgrades.

Whatever you decide, write down the replacement cost of each critical machine and the number of days you could operate without it. Those two numbers make every insurance and financing conversation more concrete.